Kenya Eyes 200+ Oil Wells

Kenya has set a target of drilling over 200 more oil production wells that will pour forth up to 80,000 barrels of crude per day as the government eyes early petrodollars. Pretty ambitious. I wonder if they'll join OPEC anytime soon...

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At one time Newfoundland had a small refinery that had a throughput of 15,000 bbls/day.  Assuming that Kenya can get up to that 80K number, what this demonstrates is that it would be sufficient for in-country processing with their own refinery.  And further assuming that Kenya would not consume the entire output, that makes Kenya a potential vendor to neighboring African countries.  

The concept of "import replacement" is a favorite of economists advancing development ideas.  The reason, other than the obvious of providing local employment and various revenue streams, is that it relieves currency drains for the purchases and thus takes the pressure off a floating exchange rate.  Kenya has split off from the East African common currency and has the Kenyan Shilling, which has deteriorated in value by about 30% over the past seven years.  That downward pressure on the currency continues to drive up costs of imports which is sucking off the real earnings of Kenya's economy, mostly from exports of tea and revenue streams from tourism.  The Kenyan Shilling now trades at 0.0099 to the US Dollar.  

Meanwhile, Kenya took out a hefty loan, perhaps $23 million, from Standard Bank of South Africa, to finance the ultimate purchase of 20 new locomotives from GE, of which the first three at least are delivered.  Creaky old engines have been holding back the railroad, which runs from the port of Mombasa on the Indian Ocean up into the highlands to Nairobi, then across the top of Lake Victoria over to Kampala, Uganda.  As Uganda is landlocked, that railroad is their outlet to the sea for their own exports and imports, with mining products going out and refined oil coming in.  All the currencies in that part of the world (including Tanzania and Rwanda) have been in a steady slide against eh US Dollar, yet since the Kenyan Shilling has been sliding less than the rest, Kenyan products have become relatively more expensive in the markets of the other countries, with Uganda being the biggest outlet for Kenyan product (principally farm products).  And all this, cumulatively, hurts Kenya. 

Incidentally GE is delighted to sell locomotives in Africa as they are not hindered by the Tier IV emissions standards in the USA which has effectively shut down new locomotive fabrication and sales in the USA (and also to Canadian Railroad operators as so much of their trackage also runs through the US or has sections owned by CN/CP and over which Canadian RRs send interlined freight). The advent of tight emissions standards has led to a revolt among US rail operators, who are now refurbishing old stuff (with much higher emissions) instead of buying new, as the new stuff requires the addition of "DEF", or "diesel emission fluid," which is fragile chemical that has to be added into a treatment device in the exhaust.  As DEF will freeze, and the staging of large supplies along remote track is a logistical nightmare, the RRs have flatly refused to do that, so the old stuff is kept running, and the overall emissions remain vastly higher.  Real smart govt bureaucrats that dreamed up that idea!

Kenya remains under pressure, yet further investments, including from Egypt and China, will bring in new capital projects that will eventually make that railroad and other infrastructure modern.  Toss in your own refinery and Kenya becomes the powerhouse economic engine for east Africa. 

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Further update:  It looks like the old mothballed refinery that shut down five years ago in Mombasa is going to get fired up.  A convoy of four (4) tanker trucks have driven from the oil fields to Mombasa with 156 barrels each, to provide the first loads into the refinery.  And if all goes well, it looks like both China and India are potential buyers  (although considering the volumes those countries consume, it hardly sounds like anything a lot of effort is going to be put into be them).  

Apparently there were or are swarms of locals mobbing the old refinery site, looking for jobs there.  One thing for sure: there is no labor shortage in East Africa. Also interesting: there was no attempt to move the oil by rail, probably due to the decrepit state of the rail line between Nairobi and Mombasa.  Needs a lot of work. 

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There was a plan to move the oil by rail. Oil tankers would drive from Lokichar to Eldoret. From Eldoret the containers would be placed on rail cars and trained to Mombassa. However political influence and Tullow decided against this and instead gave the entire contract to road transport with connections to the government

 

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2 hours ago, Dennis Morton said:

There was a plan to move the oil by rail. Oil tankers would drive from Lokichar to Eldoret. From Eldoret the containers would be placed on rail cars and trained to Mombassa. However political influence and Tullow decided against this and instead gave the entire contract to road transport with connections to the government

 

Tanker truck is a heck of a lot more expensive than crude by rail, plus all those trucks will tear up the roads. 

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8 minutes ago, Refman said:

Tanker truck is a heck of a lot more expensive than crude by rail, plus all those trucks will tear up the roads. 

Just guessing, but I would speculate that a good part of the motivation for using those trucks was to be able to hang banners off them and announce at each town the convoy passed through, that this was the "New Kenya" and that the voted-in Party was going to "rebuild Kenya," and create "New Prosperity," and all the other things that politicians are notorious for saying.  Hard to do that from a rolling RR freight train. 

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On 6/15/2018 at 5:29 PM, Marina Schwarz said:

I wonder if they'll join OPEC anytime soon...

A key word in the acronym "OPEC" is Exporting.

Kenya plans to export its very first 400,000 barrels via a tanker ship in December.

6 months from now.

That's a wee bit too small for me to truly qualify for OPEC.

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Can someone indicate what type of crude Kenya has?

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3 hours ago, Tom Kirkman said:

A key word in the acronym "OPEC" is Exporting.

Kenya plans to export its very first 400,000 barrels via a tanker ship in December.

6 months from now.

That's a wee bit too small for me to truly qualify for OPEC.

Ah, well, it's a start. Congo just joined OPEC and I didn't even know they were exporting, but that's just my ignorance.

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